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What would Milton Friedman do?

At Chicago Booth’s Economic Outlook on December 4, Professors Randall Kroszner and Raghuram Rajan, as well as Northern Trust Chief Economist (and Booth alum) Carl Tannenbaum, debated the most pressing issues of the day—the fiscal cliff, sovereign debt, turmoil in the Eurozone, and Chinese shadow banking. But the panel discussion also brought up a more timeless philosophical conversation.

“All of you said ‘fiscal stimulus is good’”, an audience member put to the panel. “Are Milton Friedman’s philosophies dead?”

In his response, Carl Tannenbaum pointed out that in the years since Friedman advocated steady growth in the money supply, the implementation of “Friedman-style” rules has become much more difficult because measuring what money is, how it moves and its link to inflation has become more challenging. Nevertheless, Tannenbaum said, the general idea that private sector should drive growth was still as valuable as ever. “The notion that the government that governs best, governs least is still evident in the remarks you heard today,” he said.

Kroszner clarified that he didn’t so much support stimulus per se as thought that some government spending had a net positive value—although much of it did not. “Friedman, although quite a radical libertarian, was not an anarchist,” he pointed out. “He certainly wanted limited government, but not zero government.” Ultimately, Kroszner said, Friedman would have wanted to submit government spending to cost-benefit analysis.

Rajan took a different tack. “There is an implicit view that we [ie, the University of Chicago] are the children, the followers of Friedman, and we are in many ways the intellectual inheritors, but Friedman would be extremely upset if we treated his work as the Bible, and something that shouldn’t be departed from,” he said.

“I think the whole point of Chicago is to challenge, to continuously refine and change what was done in the past and not to pray at the altar of Friedman or [George] Stigler and treat them as the Gospel Truth”, he added.

Rajan said he was “extremely excited” about the variety of opinions at Chicago Booth and the spirit of debate. “In that debate, nothing is sacrosanct. That’s what Friedman would have liked—constant debate and constant challenge.”